THE ACCOUNTING CYCLE: REPORTING FINANCIAL RESULTS

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THE ACCOUNTING CYCLE REPORTING FINANCIAL RESULTS
Chapter5
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Net income also appears on the Statement of
Retained Earnings.
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Statement of Retained Earnings
This statement summarizes the increases and
decreases in Retained Earnings during the period.
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Now, lets prepare the Balance Sheet.
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Next, lets prepare the Statement of Cash Flows
for JJs Lawn Care Service for May.
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Drafting Notes to the Financial Statements

• Examples of Items Disclosed
• Lawsuits pending
• Scheduled plant closings
• Governmental investigations
• Significant events occurring
• after the balance sheet date
• Specific customers that
• account for a large portion of
• revenue
• Unusual transactions and
• related party transactions

Notes to the Financial Statements
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Closing the Temporary Equity Accounts
The closing process gets the temporary accounts
ready for the next accounting period.

• Close Revenue accounts to Income Summary.
• Close Expense accounts to Income Summary.
• Close Income Summary account to Retained
  Earnings.
• Close Dividends to Retained Earnings.

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Closing the Temporary Equity Accounts
Lets prepare the closing entries for JJs Lawn
Care Service.
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Closing Entries for Revenue Accounts
Since Sales Revenue has a credit balance, the
closing entry requires a debit to the Sales
Revenue account.
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Closing Entries for Revenue Accounts
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Closing Entries for Expense Accounts
Since expense accounts have a debit balance, the
closing entry requires a credit to the expense
accounts.
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Closing Entries for Expense Accounts
Net Income
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Closing the Income Summary Account
Since Income Summary has a 400 credit balance,
the closing entry requires a debit to Income
Summary.
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Closing the Income Summary Account
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Closing the Dividends Account
Since the Dividends account has a debit balance,
the closing entry requires a credit to the
Dividends account.
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Closing the Dividends Account
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After all closing entries are made, JJs
After-Closing Trial Balance looks like this.
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Evaluating the Business
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Evaluating the Business
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Preparing Financial Statements Covering Different
Periods of Time
Many companies prepare financial statements at
various points throughout the year.
Annually
Quarterly
Interim Financial Statements
Monthly
Jan. 1
Dec. 31
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End of Chapter 5